27th March 2024 > > The UK & ETNs.

tl;dr

KuCoin is in trouble in the US. A clip of a lecture from 2013 about BTC, though not many were taking note. The UK favours institutions over individuals, but I guess we knew that already.

Market Snap

Market Wrap

Here’s another strong indicator rates are soon to head downwards – according to the FT, but hidden behind a paywall, investors are flocking to corporate bond funds at a record rate. And there is a very simple reason for this.

Corporate bonds can be viewed in some respects as a (small) leveraged play on treasuries, with a lovely bit of squirrel gamma at the long end working in your favour as rates get cut if capital gains are your thing. Investors looking for income and not capital gains will also be delirious with delight owning ten-year bonds with a 6% plus coupon when rates are back down at 2% or lower. Add in the ever-decreasing probability of default as rates do down, corporate bonds are undoubtedly a sweet spot.

Occasional Series – KuCoin

https://www.coindesk.com/business/2024/03/26/crypto-exchange-kucoin-violated-anti-money-laundering-laws-us-charges/#:~:text=Cryptocurrency%20exchange%20Kucoin%20broke%20U.S.,money%20laundering%20(AML)%20laws

I know none of the CCC readership would ever leave a material amount of assets on any centralised cryptocurrency exchange, but just in case, you have been given fair warning.

Curious Cryptos’ Commentary – BTC in 2013

Back then, it seems not many people were that interested:

https://twitter.com/WatcherGuru/status/1771637327292510429

Curious Cryptos’ Commentary – The UK

I am not sure how this got past the UK’s anti-crypto army headed up by one Rishi Sunak, but the LSE has announced the launch of ETNs (exchange-traded notes) for BTC and ETH on May 28th. Yes, I know, I had to check too, but that is the 28th of May this year not next year:

https://docs.londonstockexchange.com/sites/default/files/documents/n0324.pdf

What is remarkable is that this notice was issued just two days ago, with a deadline for the submission of proposed ETNs by 15th April 2024 for assessment. The wheels of regulatory bureaucracy have never moved that quickly, so one can only assume that behind the scenes several issuers have already agreed the terms of the prospectus with the LSE and the FCA in advance.

ETNs look much the same as ETFs but whereas the latter implies owning the underlying within a custodial arrangement, the former is a senior debt of the company that owns the underlying. The holder of that debt is the investor.

In practical terms, there is usually no difference from a retail investor’s perspective, except for one glaringly obvious carve-out.

The FCA, whose primary objective is to protect retail investors but often achieves the exact opposite, prohibited the sale of crypto ETNs to retail investors in January 2021.

The antis would call that foresight on behalf of the FCA. I call it wooden-headed. Retail investors are far better served gaining exposure to BTC and ETH, if that is their wish, via ETNs rather than solely using unregulated centralised cryptocurrency exchanges and all the attendant issues around self-custody.

Putting the griping aside, this does open a new avenue for institutional investors in the UK to gain exposure to BTC. That won’t happen immediately. As we have seen in the US, the onboarding for ETFs is a process that is started on launch date but it is a slow-burn.

What we do know is that UK institutional investors will increasingly adopt these new BTC and ETH ETNs, adding yet another layer of demand for both. Perhaps, in time, the FCA might stop gazing at its navel, take a fresh look at its mission statement, and let the little people share in the love.